Kraken Terminates US Crypto-Staking Service, Settles $30M Fine Imposed by SEC
Crypto exchange Kraken confirms the immediate shutdown of its US-based crypto staking-as-a-service operations. The shutdown will feature payment of a $30 million fine imposed by the US Securities and Exchange Commission (SEC) for offering unregistered securities.
Constituent Kraken’s Firms Terminate the Staking Services
The statement by the crypto exchange firm dated February 9 indicated that the Kraken constituent firms – Payward Trading Ltd and Payward Ventures Inc – would shut down the staking programs to the US customers. The SEC representative confirmed in a subsequent update that Kraken had run the programs illegally since 2019.
The SEC release alleged that crypto exchange Kraken touts its program to the public as a user-friendly platform where investors would earn from its efforts. The SEC statement indicated that Kraken appealed to US users of guaranteed earnings from its regular investment payouts.
Kraken’s subsequent blog post outlined that the crypto exchange would unstake all cryptos involving US clients. Nonetheless, it would exempt staked ether till the conclusion of the scheduled Shanghai upgrade on the Ethereum Network. Meanwhile, US customers cannot stake new assets and ether though non-US clients access the service.
Heightened Risk of Staked Tokens
The decision follows the February 9 lawsuit filed by SEC alleging that Kraken’s yield exceeded the 20% outlined on its website. The press release by SEC characterized Kraken’s staking services as subjecting the US citizens to a heightened risk of losing their tokens. SEC observed that Kraken offered little protection to US citizens when committing the staked tokens to the service providers.
The SEC release detailed staking as the process where the proof-of-stake (POS) blockchain networks such as Ethereum maintain security. The process allows decentralized validators within the network to post their cryptos as collateral for their honesty. The validators earn token rewards for executing the transactions. The SEC observed that crypto stakers prefer loaning the tokens to identified service providers running the nodes. The process allows stakers to share in the yields earned by the service providers.
SEC Enforcing Truthful Disclosure and Investors’ Protection
The SEC’s decision on Kraken’s products is set to alter the staking segment as other providers rethink their programs. Coinbase (COIN) and Decentralized protocol Lido are among those reconsidering the staking to customers.
The SEC chair Gary Gensler tasked crypto operators with complying with the proper disclosures and implementing safeguards. The Chair challenged crypto intermediaries, lenders, and providers of staking-as-a-service to safeguard customers when drafting investment contracts involving investors’ tokens.
In his address, Gensler indicated the SEC’s action against Kraken obliges providers of staking-as-a-service to comply with the registration requirements. The SEC chair emphasized compliance involved providing full and truthful disclosure without compromising investor protection.
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